Managers cautious on real estate despite busy French market

By: Madison Marriage | 13 Jan 2012

La Francaise REM, Deutsche Hypo and Henderson Property have recently made plays in the French property market both in and beyond Paris, but managers are not convinced European real estate offers refuge.

Last week La Francaise REM acquired an office site on the rue du Dôme in Boulogne-Bilancourt, an area on the outskirts of Paris. It purchased the 5,200 sqm building from a pan-European German property fund for the net value of €23m.

Meanwhile Henderson Global Investors sold an office building in Paris to iii-investments for €17.5m, representing a net initial yield of 5%. The 2,064 sqm building, located in the 2nd arrondissement of Paris, had been extensively renovated in 2008.

International real estate advisor Savills recently carried out valuations for Deutsche Hypo on two assets in the Parisian central business district comprising a total of 21,500 sqm of prime office space.

Deutsche Hypo refinanced the two properties in Rue de Louvre and Avenue Matignon to French real estate company Gecina for €104m. The loans have an average maturity of 8.5 years.

Stéphane Peybernes, head of Savills valuation team in France, said the valuation of these two office properties demonstrates “the Paris central business district (CBD) investment market is looking healthy at the beginning of 2012 with attractive lending rates available.”

The Parisian property market has been a subject of controversy since prices hit an all-time high in August 2011, encouraging fears that the market could be experiencing a bubble.

Elsewhere in France, Corio, the Dutch retail property company, sold a 9,500 sqm retail complex in central Metz to Grosvenor, the UK-based property company. The complex, located in Rue Serpenoise in Metz’ commercial centre and let to Zara and department store Printemps, sold for €30m representing a net initial yield of 5.5%.

La Française REM also made a €40m acquisition in Lyon, purchasing Le Green, a 1970s building set to be transformed into 10,840 sqm of office space.

According to the French Real Estate Association (Fnaim), property values across France rose by 7.3% in 2011 and jumped 22% in Paris (which had already experienced a 12% leap in 2010).

Yet at a recent conference in Paris, Jean-Marie Mercadal (pictured), head of multi-management and asset allocation at French group Ofi Asset Management, said real estate has become an expensive and risky asset class.